Charities continue to face numerous challenges in the current environment and how they approach reward will play an important role in mitigating these pressures and attracting or retaining strong talent.

Challenge 1: Funding and inflationary pressures

Funding and revenue are central to any organisation’s ability to offer staff an attractive package, and many charities are facing huge challenges in this area. The sector as a whole is being attacked in this regard from two sides with state funding and voluntary funding both being affected over the course of this decade.

In social care, for example, we are seeing charities heavily impacted by reduced national government funding, which has a trickle-down effect. Restricted local authority budgets inevitably mean tighter funding of their operations. In addition, some may also have experienced the knock-on effects of public sector pay disputes.

Charities with funding models depending on voluntary income are facing different kinds of pressures. One major legacy challenge since the start of this decade is the loss of income caused by the pandemic and the cancellation, postponement or downward impact it had on fundraising efforts and events: if these events didn’t happen there was no fresh fundraising money coming in. More recently, the cost-of-living crisis has left many more people feeling the pinch, and that has had a very real and direct impact on their ability to donate money or time.

Irrespective of their funding model, all charities are suffering from double-digit inflation, both in terms of lower income, particularly affecting lower-paid staff, and higher operating costs. It seems certain that creative thinking and the diversification of dwindling income streams will remain an ongoing reality for the foreseeable future.

Challenge 2: Market perception

In terms of reward, charities struggle to compete against both the private and public sector. Just as significantly, they are also struggling to shrug off the perception among workers that they are coming to the market with an unattractive offer.

Typically, they struggle against the private sector in terms of general pay and pay awards, and against the public sector in pay awards and benefits, such as pension provision. Against this backdrop, charities are finding it hard to attract good people, whether they are starting out on their careers or already established in other sectors.

Challenge 3: Charities losing their trump card

Traditionally, charities have relied on a more holistic approach to recruitment and engagement to keep people onside. This has been founded on a sense of purpose, goodwill and a focus on work-life balance that has often manifested itself in greater flexibility. Charities have held this ‘benefit’ up as a counterbalance to higher pay, a way of offsetting the workers’ “goodwill tax”.

However, the pandemic has stripped back many of the advantages charities had carved themselves out in this space. With such an increase in remote and hybrid working during and after the pandemic, organisations in many sectors have demonstrated a more open approach to flexible working, and an increased emphasis on wellbeing. This clearly presents another major challenge to the charity sector as it seeks to emphasise its focus on positive workplaces, meaningful work, purpose, leadership and career prospects.

So how can the charity sector make reward effective?

Working with clients in the charity sector, QCG and Innecto have noted some key findings:

Pay Benchmarking – To ensure competitiveness of pay, charities need to determine which sector (and/or data source) to benchmark overall pay structures against. It is also important to use that benchmarking exercise as a reference, rather than a formula or target. Applying it too rigidly can have a negative impact on financial sustainability, especially in such a challenging economic climate.

Review reward structures - Legacy reward structures will often be obsolete and can be replaced with more a robust approach that can be both equitable and flexible enough to deal with issues in recruitment and retention.

EVP – Having a clear Employee Value Proposition (EVP) backed up by tangible reward principles presents an organisation as an attractive place to work. It also helps HR and managers run reward initiatives in line with the organisation’s culture and DNA.

Doing more with less - Ensure that the wider reward offering is fit for purpose, well communicated and understood.

Support wellbeing and flexible working – It is essential to retain and even enhance these key pillars of the charity sector offering. Regional pay models should also be considered given the rise in remote working.

Support career progression and fairness – Even if it is more challenging in the charity sector, it is important to tackle head-on the issue of career progression opportunities. Also to recognise and reward individual contributions, always being careful to consider how the sector approaches performance and contribution in line with fairness.

Charity sector workers are likely to be motivated by the mission of the organisation they are working for and sometimes that will be enough to keep them happy and engaged. However, outdated reward models can easily breed misunderstanding, which can lead to disconnects between the work being done and the value employees place on their reward package. By spelling this out through an Employee Value Proposition underpinned by clear reward principles, misunderstandings can be avoided and any negative impact on recruitment, retention and financial sustainability can be flipped around into stories of positive engagement and job satisfaction.

QCG and Innecto work together to deliver fair and engaging reward, recognition, and employee experiences. If this article is useful and you feel you might benefit from help reassessing your approaches to reward, please contact mark.strong@qcg.co.uk

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